The Regulation Regarding Angel Investment Capital
Introduction
Until recently, there was not any specific regulation in Turkey with respect to providing financing to entrepreneurs who had unique ideas and projects but not enough funding. However, there were indications of the preparation of a regulation regarding this issue.
Angel investment capital is a financial tool for start-up or growth stage ventures that lack financing; it is a system where real persons provide financing or become a shareholder by providing capital to such ventures. State support for angel investment capital was introduced with provisional Article 82 annexed to the Income Tax Law (“ITL”) and additional article 5 of the Law regarding the Organization and Duties of the Undersecretariat of Treasury which was added with Article 14 of the Law numbered 6327.
The Regulation regarding Angel Investment Capital (“AICR” or “Regulation”), which was published in the Official Gazette dated 15.02.2013 and numbered 28560, contains principles and procedures regarding state support of angel investment capital and supervision of the activities of the investors. Within this article, the innovations brought by AICR shall be analyzed.
Benefiting from State Support
AICR stipulates that real persons investing as an angel investor to a venture firm may benefit from state support. The aim of this regulation is to entice investors and accordingly increase the number of investments qualifying as innovations. AICR and provisional Article 82 of the ITL set forth the conditions required to benefit from such state support. Pursuant to the Regulation, angel investors must hold the acquired participation shares, which belong to the venture company, for at least two years and must place the committed amount into the bank account of the venture company in cash. In addition, the industry sectors which can benefit from state support are set forth in AICR Annex 4. State support shall apply only to the sectors determined under Annex 4 of the Regulation. Furthermore, the Regulation indicates that investments may be made only in joint stock companies and the qualities that these companies must possess are specified in the Regulation.
The Regulation determines the minimum and maximum investment amounts in order to benefit from the tax-allowance. Accordingly, the value of the acquired company shares cannot be less than TRL 20.000 and more than TRL 1.000.000 per annum. These values are determined as fixed values and the non-specification of a rate of increase may be deemed as a weakness in the AICR. Moreover, angel investors may benefit from state support for up to twenty joint stock companies during a five year period of license validity.
Further to the provisions stated above, AICR contains an essential provision which holds that foreign nationals may be angel investors along with Turkish citizens.
Angel investors fulfilling the stipulated conditions will benefit from the tax-allowance ratios as stated in the Regulation. However, the tax-allowance amount has an upper limit of TRL 1.000.000 under the AICR.
Licensing and Application
AICR requires the pursuance of certain steps in order to benefit from the tax-allowance.
Pursuant to the Regulation, real persons must obtain a license for tax support. The license application is made to the Undersecretariat of Treasury through accredited angel networks and different documents are requested from the high-income earning and experienced investors pursuant to Article 7 of the Regulation. According to the Regulation, the license is valid for five years and licenses may be extended for a period of five years. If any situation stipulated under Article 11 of the Regulation materializes, the license will be canceled.
In addition to the above requirements, AICR stipulates in Article 21 separately that an application by the angel investors accompanied by documents such as a business plan and articles of association is necessary to gain tax support. Notwithstanding the requirement in Article 5 of the Regulation regarding the obtainment of a license, Article 21 of the Regulation sets forth the necessity of the application with other documents to the Undersecretariat to benefit from the support. Therefore, it may be concluded that the documents to be submitted and the procedures to be followed in order to benefit from state support are not specified in a clear and orderly manner under the Regulation.
Specific Regulations for the Angel Investor
The Regulation sets forth different provisions and regulations for angel investors.
Among the provisions, the one regarding angel investors’ participation in the management of the venture company is of importance. Pursuant to this provision, the investors’ participation in company management is limited to participation in the official management body. Angel investors cannot have any duty in the company except the board of directors and cannot work as company personnel in the venture company. Moreover, angel investors may not receive remuneration and salary. Therefore, the participation of angel investors in a start-up company is limited.
The Regulation provides an opportunity to angel investors for making investments into venture companies as a group. These joint investments are defied as “angel groups”. In such cases, pursuant to the Regulation, the shareholders shall be subject to the provisions regarding joint-stock companies in the Turkish Commercial Code.
The angel network is defined in the Regulation as the structures where entrepreneurs come together with the angel investors. The Regulation governs the accreditation, accreditation criteria and the authority provided to the networks as a result of accreditation. The application to the Undersecreteriat is submitted through such accredited networks. These networks are authorized to file and finalize applications, supervise, audit the networks’ members and report any irregularities to the Undersecretariat.
The Regulation sets forth certain reporting and notification obligations for venture companies. Pursuant to the Regulation, the venture company is obliged to send an activity report to the Undersecretariat indicating the company’s business stage according to the business plan for two years as of the date angel investors become shareholders in the venture company and pay the capital to the bank account in cash.
Conclusion
AICR aims to support entrepreneurs and venture companies who experience financial difficulties, but have innovation-oriented creative ideas, by regulating angel investment capital, a financing tool for ventures who lack funding. This Regulation aims to, institutionalize angel investment capital and induce investments.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
A new legislative package, the Listing Act, was adopted by the European Council on October 8, 2024 to make capital markets within the European Union (“EU”) more attractive and facilitate companies' IPO process. The Listing Act amends the EU Prospectus Regulation, the EU Market Abuse Regulation, the Markets...
Crypto assets have become a significant component of financial markets in recent years, prompting the development of a regulatory framework in response to growing investor interest. In this context, both the amendments to Capital Markets Law No. 6362 (“CML”) and various resolutions issued by the Capital...
New ventures and, in this context, start-up companies have been essential players in economic life for a long time. Significantly in terms of new technologies and creative ideas, instead of established and large structures, new ventures and structures where individuals' personal contributions matter more greatly...
The website is one of the most important tools that reinforces the transparent management approach of companies and enables company stakeholders such as shareholders, company creditors, and those who carry out activities with the company to access important information about the company quickly and...
Crypto assets have created a significant change in the financial system with the emergence of blockchain technology. The decentralized and digital nature of these assets has offered a new method outside of traditional monetary systems...
The Keener decision represents a pivotal moment in interpreting and applying securities laws as it pertains to the definition and regulatory treatment of “dealers” within financial markets.This case arose from actions taken by the Securities and Exchange Commission (“SEC”) against Justin W. Keener, who was accused...
Responsible Management Principles (Stewardship Principles, SP) have been regulated by the Capital Markets Board (CMB) regarding the securities investment funds (Funds) founded by Portfolio Management Companies (PMC)...
Information holds paramount importance in the capital markets. Investors, whether seasoned professionals or newcomers, depend on various sources to guide their decisions amidst the complexities of the capital markets...
In the intricate web of finance and law, the US Court of Appeals for the Second Circuit’s ruling of Kirschner v. JP Morgan Chase Bank, N.A. (“Kirschner Ruling”) stands at the confluence of international banking regulations and securities law, presenting a thorough examination of the legal frameworks governing the...
Sustainability-linked derivatives transactions involve the embedding of a cash flow in derivatives that will change in a sustainability-linked way, and institutions' compliance with environmental, social, and governance (ESG) objectives is monitored using specific performance indicators...
There is no specific procedure in the Turkish Commercial Code (TCC) that publicly traded corporations must follow in terms of providing collaterals, pledges, mortgages and sureties (CPMS). Authority for and procedure of provision of CPMS are determined according to the general rules...
In line with the financing needs of companies and their desire for institutionalization, the number of public offerings shows an upward trend across Türkiye. Looking at the data published by the Capital Markets Board on its website regarding initial public offerings, it is seen that, it is seen that 35 public offerings...
The Communiqué on the Principles Regarding the Companies whose Shares will be Traded on the Venture Capital Market (II-16.3) ("Communiqué") has facilitated for private joint stock companies to sell their shares to qualified investors without a public offering. Thus, a new opportunity is created for joint stock...
Swiss Financial Markets Supervisory Authority (“FINMA”), through its decision dated 19 March 2023, approved the merger of Credit Suisse with UBS Group AG (“UBS”) and to write down the Additional Tier 1 capital bonds (referred to as AT1) issued by Credit Suisse, with a total value of approximately CHF 17 billion...
The Capital Markets Board’s (“Board”) long-awaited Communiqué on Crowdfunding No. III - 35/A.2 (“Communiqué”) entered into force through its publication in the Official Gazette numbered 31641 and dated 27 October 2021...
Mortgage covered bonds are one of today’s most common structured finance products. Although they have a prominent presence in the marketplace today, these bonds have historical roots in the Pfandbrief of 18th century Prussia. In the aftermath of the Seven Years War, King Frederick the Great implemented...